Nortech Systems Announces 2022 Second Quarter Results

Gross Profit of $5 million Up Nearly 40% Compared to Second Quarter 2021

MINNEAPOLIS - Nortech Systems Incorporated (Nasdaq: NSYS) (the "Company"), a leading provider of engineering and manufacturing solutions for complex electromedical and electromechanical products serving the medical, industrial and defense markets, reported 2022 second quarter results for the period ended June 30, 2022.

2022 Second Quarter Highlights

• Revenue of $32.5 million, up nearly 8% compared to the second quarter of 2021.
• Gross margin of 15.4%, up 3.5 percentage points compared to the second quarter of 2021.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.5 million, up over 70% from the second quarter of 2021.
• Quarter-end shipping backlog of $106.2 million up nearly 50% compared to the backlog as of June 30, 2021, with strong growth across all markets.
• Launched Active Optical Xtreme (AOX™) cable solutions in April 2022.
• Industry veteran David Graff was elected to the Board of Directors in May 2022.

Management Commentary

"Our strong second quarter improvements are significant, particularly in light of healthy 2021 comparisons," said Jay D. Miller, Chief Executive Officer and President. "These solid results are a credit to all our Nortech team members. We are focused on supporting our strategic medical, industrial, and defense customers with mission-critical solutions in a very complex business environment.

"We are encouraged by continued demand growth across these markets, evidenced by our record backlog," added Miller. "Currently the dominant concern of many customers is supply-chain reliability, so our end-to-end fulfillment solutions and collaborative supplier relationships combine to offer a particularly strong value proposition. We are fortunate to have many long-term, loyal customers and responsive suppliers. Many of these relationships have endured for decades through various economic cycles."

2022 Second Quarter and Year-to-Date Results (in thousands)

In the second quarter of 2022, revenue totaled $32.5 million. This represents a 7.7% increase from revenue of $30.2 million in the second quarter of 2021. For the first half of 2022, revenue totaled $63.2 million, a 21.0% increase from the first half of 2021. Net income totaled $0.7 million, or $0.25 per diluted share, in the second quarter of 2022, up from net income of $0.2 million, or $0.06 per diluted share, in the second quarter of 2021. Through the first six months of 2022, net income totaled $0.9 million, or $0.30 per diluted share, up from a net loss of ($1.4) million, or ($0.52) per diluted share, through the same period in 2021.

In the second quarter of 2022, gross profit totaled $5.0 million, or 15.4%, compared to gross profit of $3.6 million, or 11.9%, in the prior-year quarter. Through the first six months of 2022, gross profit of $9 million, or 14.3%, was up from gross profit of $5.1 million, or 9.8%, in the first half of 2021. Gross profit improvement was primarily due to pricing increases implemented to overcome inflationary cost pressures coupled with higher plant volume and improved operating efficiencies.

Second quarter 2022 operating expenses totaled $4.0 million, unchanged from the previous quarter and a 25.1% increase from second quarter 2021 operating expenses of $3.2 million. The $0.8 million increase in year-over-year operating expense was driven primarily by investments in research & development, sales & marketing, and upgrading essential IT, HR, and analytical capabilities. For the first six months of 2022, operating expenses totaled $7.9 million, up 13.6% from operating expenses of $6.9 million in the first half of 2021.

Second quarter 2022 EBITDA totaled $1.5 million, up over 70% from EBITDA of $0.9 million in the second quarter of 2021. For the first six months of 2022, EBITDA totaled $2.1 million, a significant improvement from an EBITDA loss of ($0.6) million through the first six months of 2021. Increased EBITDA resulted from previously discussed revenue and margin improvements during the periods.

Business Outlook

"Looking ahead, we are optimistic about the second half of the year," explained Miller. "Our healthy backlog indicates demand well past December and shows no signs of diminishing. Sales growth and selective pricing actions should drive modest margin expansion for the remainder of 2022. We also expect improved, positive cash flow in the third and fourth quarters. Finally, we anticipate contributions from new cable technologies as we move into 2023.

"Our employees, management team, and board of directors have built a solid foundation for growth in 2022 and beyond. Everyone is committed to executing on our fundamentals: continuous improvement and operational excellence in all facets of our global business, striving to provide world-class quality, on-time delivery, and competitive pricing.

"We continue to strengthen our core business through various initiatives, including leveraging our team members' customer-specific expertise to provide innovative fulfillment solutions for sophisticated low-volume/high-mix contract manufacturing services. Our program management, engineering support, and innovation capabilities are also valuable to both established customers and start-ups," concluded Miller.

Conference Call

The Company will hold a live conference call and webcast at 4:00 p.m. central time on Wednesday, August 10, 2022, to discuss the company's second quarter financial results. The call will be hosted by Jay Miller, Chief Executive Officer and Chris Jones, Chief Financial Officer. To access the live audio conference call, US participants may call 888-506-0062 and international participants may call 973-528-0011. Participant Access Code: 189138. Participants may also access the call via webcast at: https://www.webcaster4.com/Webcast/Page/2814/46177

About Nortech Systems Incorporated

Nortech Systems is a leading provider of design and manufacturing solutions for complex electromedical devices, electromechanical systems, assemblies, and components. Nortech Systems primarily serves the medical, aerospace & defense, and industrial markets. Its design services span concept development to commercial design, and include medical device, software, electrical, mechanical, and biomedical engineering. Its manufacturing and supply chain capabilities are vertically integrated around wire/cable/interconnect assemblies, printed circuit board assemblies, as well as system-level assembly, integration, and final test. Headquartered in Maple Grove, Minn., Nortech currently has seven manufacturing locations and design centers across the U.S., Latin America, and Asia. Nortech Systems is traded on the NASDAQ Stock Market under the symbol NSYS. Nortech's website is www.nortechsys.com.

Forward-Looking Statements

This press release contains forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 including without limitation statements regarding sales growth, margin expansion, improved positive cash flow, future financial results or trends in financial results, our ability to adjust pricing to combat inflation, our ability to work with customers and suppliers to overcome supply chain challenges, improving supply chain management, revenue and growth contributions due to of new products, technologies and innovations, backlog trends, customer demand, and steady improvement in production output. While this release is based on management's best judgment and current expectations, actual results may differ materially from those expressed or implied and involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: (1) engineering challenges with new products, technologies and innovations; (2) our ability to secure intellectual property rights with respect to new products, technologies, and innovations; (3) the impact of the COVID-19 pandemic on our customers, employees, manufacturing facilities, suppliers, the capital markets, and our financial condition; (4) supply chain disruptions leading to parts shortages for critical components; (5) volatility in market conditions which may affect market supply of and demand for the company's products; (6) increased competition; (7) changes in the reliability and efficiency of operating facilities or those of third parties; (8) risks related to the availability of labor; (9) commodity cost increases coupled with our inability to raise prices charged to our customers; (10) general economic, financial, and business conditions that could affect the company's financial condition and results of operations; (11) the Company's ability to steadily improve manufacturing output throughout the remainder of 2022. Some of the above-mentioned factors are described in further detail in the section entitled "Risk Factors" in our annual and quarterly reports, as applicable. You should assume the information appearing in this document is accurate only as of the date hereof, or as otherwise specified, as our business, financial condition, results of operations and prospects may have changed since such date. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the United States Securities and Exchange Commission, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Reconciliation of Non-GAAP Financial Measure

EBITDA is a non-GAAP financial measure. EBITDA is defined as net income (loss) plus interest expense, net, plus income tax expense plus depreciation expense and amortization expense. EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. It is not a measurement of our financial performance under GAAP and should not be considered as alternatives to revenue or net income, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our operating results as reported under GAAP. EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations and other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

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Chris Jones, CFO
[email protected]
952-345-2244